Lever Age pays a(n) 8% rate of interest on $10.6 million of outstanding debt with face value $10.6 million. The firm’s EBIT was $1.6 million.a.What is times interest earned? (Round your answer to 2 decimal places.) Times interest earned b.If depreciation is $260,000, what is cash coverage? (Round your answer to 2 decimal places.) Cash coverage c.If the firm must retire $360,000 of debt for the sinking fund each year, what is its “fixed-payment cash-coverage ratio” (the ratio of cash flow to interest plus other fixed debt payments)? (Round your answer to 2 decimal places.) Fixed-payment cash-coverage ratio

Annual interest = Face Value of debt x Rate of interest x period = $10,600,000 x 8% = $848,000

Answered: Lever Age pays a(n) 8% rate of interest…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 6P

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Lever Age pays a(n) 8% rate of interest on $10.6 million of outstanding debt with face value $10.6 million. The firm’s EBIT was $1.6 million.

a.	What is times interest earned? (Round your answer to 2 decimal places.)

Times interest earned

b.	If depreciation is $260,000, what is cash coverage? (Round your answer to 2 decimal places.)

Cash coverage

c.	If the firm must retire $360,000 of debt for the sinking fund each year, what is its “fixed-payment cash-coverage ratio” (the ratio of cash flow to interest plus other fixed debt payments)? (Round your answer to 2 decimal places.)

Fixed-payment cash-coverage ratio

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